Regular or Roth 401K

[Anonymous]

DC (22) just started a job with a Big Tech company and will be in the 24% tax bracket for the next full year (22% this year). State taxes are another 5% marginal. He called today asking if he should contribute to a pre-tax or Roth 401K. What would you recommend for the rest of 2025? 2026?
Ofc, we realize that the future is unknown, AI, potential for layoffs, etc.

[Anonymous]

Max Roth.

[Anonymous]

Does his company match? Either?

[Anonymous]

Neither. Read the pros and cons of Traditional and Roth 401k vs Roth IRA.
Roth IRA all on his own. Far away from his company and any bank offering to help.
Roth 401k has no income restrictions.
Does he qualify for Roth right?
Tell him to use his own after tax money to open a Roth IRA with RH or Fidelity and learn to pick good stocks. He will get a lot of experience doing it on his own.

[Anonymous]

Max company Roth and do backdoor Roth

[Anonymous]

Anonymous wrote:Max company Roth and do backdoor Roth

This. At that age, definitely ROTH.

I’d do ROTH 401k up til any company match

Then (backdoor) ROTH IRA (since investment options are more flexible and he could access the contributions if times got rough)

Then fill the rest of the ROTH 401k up til what he can afford to contribute.

[Anonymous]

Anonymous wrote:Neither. Read the pros and cons of Traditional and Roth 401k vs Roth IRA.
Roth IRA all on his own. Far away from his company and any bank offering to help.
Roth 401k has no income restrictions.
Does he qualify for Roth right?
Tell him to use his own after tax money to open a Roth IRA with RH or Fidelity and learn to pick good stocks. He will get a lot of experience doing it on his own.

That is horrible advice, always take the match and most people should not buy individual stocks.

[Anonymous]

OP.. Thanks for all the inputs..

Here are more details:
- Company matches a portion of every dollar contributed in regular or Roth 401K, so he has to contribute the full 23,500 (24.5K next year) to maximize that. Original question was whether it should all be in pre-tax or Roth 401k given his tax bracket.
- In addition, he will contribute to a Roth IRA outside of work. Has been doing that for a couple of years with internship income.
- His company 401K allows individual stock trading as well, though I suspect with a limited set of tools.

[Anonymous]

If they were in the 22% and just now moved to 24% that's 100k -> max 191k. I'll assume it's more like 150k for the new year. Getting the full 50% big tech match is the most important thing to focus on and that'll be easier if you do pre-tax since you need to still pay your bills and live a life on like 125k after tax. If your DC feels like they have more to save they should put it into the two back doors that big tech offer or invest in VOO.

The big tech strategy is to aim for max 401k to get the 50% match, max backdoor, max mega backdoor for a total now of $77k in retirement per year. Your DC is too early career wise to hit that, but aiming for that over time (while still saving enough to buy a house and car) is more important than Roth vs Trad.

[Anonymous]

Max your Roth early in your career.
This is likely the lowest tax bracket you will ever be in.
Plus tax rates are almost certainly going to increase in the future (we're at close to a historical low in the top bracket- it was over 50% for 70 years)

[Anonymous]

He is already is the 24% bracket so he is not like most people starting their careers. Also he is not like most people in that he gets a match for every dollar he contributes up to $24k. Contributing $24k to a Roth will mean approx. $30k+ hit on his paycheck withholding (vs $24k or so for a traditional).

So, if contributing to a Roth reduces his take home enough that he would contribute less to the Roth (e.g., he can only afford a $24k hit on his paycheck so he can only contribute $19k to the Roth) then it's a no brainer to contribute to the traditional because he is giving up $5k in matching by using a Roth.

If he wants to and can afford to contribute $24k to the Roth, and he expects his pay/retirement savings to rise enough to get him out of the 24% tax bracket in the future, then a Roth probably makes sense. If not then I'd do a traditional (and supplement with a Roth IRA so he has at least some money there, or split the contribution so he makes sure he gets all the match but saves a little more in Roth).

[Anonymous]

Anonymous wrote:Max company Roth and do backdoor Roth

+1

[Anonymous]

Anonymous wrote:OP.. Thanks for all the inputs..

Here are more details:
- Company matches a portion of every dollar contributed in regular or Roth 401K, so he has to contribute the full 23,500 (24.5K next year) to maximize that. Original question was whether it should all be in pre-tax or Roth 401k given his tax bracket.
- In addition, he will contribute to a Roth IRA outside of work. Has been doing that for a couple of years with internship income.
- His company 401K allows individual stock trading as well, though I suspect with a limited set of tools.

He definitely should do Roth to as much as he can given the way the match works. Company matches are always in pre-tax I believe. So he would end with half in Roth and half in pre-tax; this is much better than all in pre-tax. The half in Roth will pay dividends down the road in the form of tax free withdrawals.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP.. Thanks for all the inputs..

Here are more details:
- Company matches a portion of every dollar contributed in regular or Roth 401K, so he has to contribute the full 23,500 (24.5K next year) to maximize that. Original question was whether it should all be in pre-tax or Roth 401k given his tax bracket.
- In addition, he will contribute to a Roth IRA outside of work. Has been doing that for a couple of years with internship income.
- His company 401K allows individual stock trading as well, though I suspect with a limited set of tools.

He definitely should do Roth to as much as he can given the way the match works. Company matches are always in pre-tax I believe. So he would end with half in Roth and half in pre-tax; this is much better than all in pre-tax. The half in Roth will pay dividends down the road in the form of tax free withdrawals.

Assuming anything like current tax law, Roth for tax free withdrawals, no RMAs, and no taxes for beneficiaries.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP.. Thanks for all the inputs..

Here are more details:
- Company matches a portion of every dollar contributed in regular or Roth 401K, so he has to contribute the full 23,500 (24.5K next year) to maximize that. Original question was whether it should all be in pre-tax or Roth 401k given his tax bracket.
- In addition, he will contribute to a Roth IRA outside of work. Has been doing that for a couple of years with internship income.
- His company 401K allows individual stock trading as well, though I suspect with a limited set of tools.

He definitely should do Roth to as much as he can given the way the match works. Company matches are always in pre-tax I believe. So he would end with half in Roth and half in pre-tax; this is much better than all in pre-tax. The half in Roth will pay dividends down the road in the form of tax free withdrawals.

Assuming anything like current tax law, Roth for tax free withdrawals, no RMAs, and no taxes for beneficiaries.

Sorry, RMDs